The world we live in, is a perpetual research to achieve a more stable, efficient and rewarding life, battling against competitors, economic issues and plenty of other impediments; this is a perfect reflection, in a bigger scale, of the world of companies and firms.
In order to understand how companies operate in such a competitive and unscrupulous market, a very successful company will be analyzed, and its strategies will be related to conditions in its industry.
Such analysis will be based on the scheme called strategic planning, that firms themselves use to formulate and evaluate their strategies.
The company that will be analyzed is the Italian luxury sports cars manufacturer Ferrari S.p.A.. “The company’s story officially began in 1947 when the first Ferrari emerged from the historic factory entrance on Via Abetone Inferiore in Maranello. The 125 S, as it was known, embodied the passion and determination of the company’s founder” (Ferrari.com, 2015).
The first step that needs to be taken into consideration before analyzing the environment of the industry, is the formulation of the goal of the company.
Ferrari’s objective has always been producing the best luxury sports cars in the world. In order to be the best, the products have to be “valuable, rare, inimitable and non-substitutable” (Douma and Schreuder, 1992), and this is what Luca di Montezemolo, Ferrari’s Chairman, is looking for when launching his supercars in the market.
The company aims for a narrow target of devoted customers, keeping prices high but at the same time, giving the client a product which is in many senses unique, from the bodywork design to the powerful and reliable engine and to the brand image.
Therefore, it is clear how Ferrari S.p.A. utilizes a “focused differentiation” (Porter, 1990) strategy , which is characterized by a narrow target of customer and an effective product differentiation, rather than price competition.
Moreover, the supercars company aims to constant innovation, to be always one step ahead of other luxury sports cars manufacturer; “innovation here is defined broadly, to include both improvements in technology and better methods or ways of doing things” (Porter, 1990).
Once that the main goals of Ferrari have been formulated, it is fundamental to develop a good knowledge of the environment in which the firm operates. The analysis will be based on Porter’s Five Forces, “a framework for industry analysis and business strategy development formed by Michael E. Porter of Harvard business School in 1979” (sites.google.com, 2015), that allows to clarify the attractiveness of a market through five forces: threat of new entrants, threat of substitutes, power of suppliers, power of buyers and degree of rivalry.
The threat of new entrants, for the luxury cars market, is relatively low, because “initial investment into a car industry is colossal and the amount of capital needed first for R&D is substantial” (sites.google.com, 2015). The most profitable and efficient car manufacturer firms have been in the industry since when the cars industry was emerging in the early ‘20s: these are all factors that explain how the natural barriers to entry in this industry are substantially high.
The threat of substitutes in this market diversifies for most of the brands: as a matter of fact, if a leading brand like Porsche decided to increase the price of its cars, to a level comparable to Ferrari’s prices, its sells would most likely drop drastically, even though Porsche manufactures reliable, fast and elegant cars just like Ferrari does; this is because Porsche is not as much exclusive, rare and inimitable. Therefore, although the supercars market threat of substitutes would be moderate, in Ferrari’s case, the exclusivity of its products and the brand image allow the company to be one step ahead of other manufacturers.
The power of suppliers, especially for the supercars market, is high because “when it comes to luxury brands they use real
